To understand how far Passport Health Plan has come, you have to first revisit where the Medicaid managed-care insurance plan was only a few months ago.

Passport was Kentucky’s biggest scandal.

Eight months ago, an audit by Kentucky Auditor of Public Accounts Crit Luallen found Passport’s four-person executive staff was living large – traveling, dining and spending Medicaid/taxpayer money like mad with no clear purpose or oversight.

That is, top executives Shannon Turner and Nici Gaines were doing all those things when they weren’t busy running Consulting Strategies Team LLC on the side, working as consultants to the contractor they were being paid six-figure salaries to oversee as Passport executives.

On top of the reality show celebrity behavior, Passport was shuttling millions back to the hospital systems that created it including to the University of Louisville.

All of this at a Medicaid insurance plan that is the health care safety net for Kentucky’s poorest.

Now, new management say they’ve reinvented Passport, which they call a model for managed care Medicaid in the state – a sensational story, but not sensational in a way that sells newspapers.

Moreover, University Health Care Inc., the shell corporation where Turner and Gains oversaw Passport’s outside contractors, has been integrated into the overall Passport operations, uniting all services, management and governance into one entity.

Luallen said in an interview earlier this week that the new management team, which includes CEO Mark Carter, the former Jewish Hospital CFO, has made most, if not all, the changes state officials required.

“We are impressed with Mark Carter’s understanding of the issues and his commitment to following through on our auditors’ recommendations … and we’re pretty harsh critics,” she said.

Following the release of the audit last November, Gov. Steve Beshear and Health and Family Services Cabinet Secretary Janie Miller issued an 11-point action plan.

They wanted a new Passport CEO.

The wanted board chairman Dr. Larry Cook to resign.

They wanted Passport’s board governance to be restructured, with more representation on the board from across the region, not just from the sponsoring hospital groups such as Jewish Hospital & St. Mary’s Healthcare, Norton Healthcare and University of Louisville Hospital.

Passport had to get rid of its lobbyist.

The new Passport management had to hire a corporate compliance officer.

All those things happened, Carter said.

In addition, Passport’s sponsors including U of L agreed to return $26 million they received in “dividends” or surpluses from the previous Passport management.

State officials have begun a follow-up audit of the plan.

The following is a question-and-answer session with Carter and Jill Bell, Passport chief communications officer. The interview, which lasted more than one hour, has been edited for length.

Insider Louisville – You said your first step when you became CEO was to go to the board and poll them as to whether they were committed to preserving Passport. Why was it important Passport survive?

Mark Carter – If you look at the results the plan has generated over its existence, it was the 15th-ranked Medicaid managed care plan in the nation as ranked by the National Committee for Quality Assurance (a national, non-profit agency based in Washington, DC.) The NCQA rankings are based on quality, outcomes, satisfaction and cost.

(According to the Kaiser Family Foundation, the U.S. spends an average of $7,681 per person on health care. In Kentucky the $6 billion spent annually statewide on Medicaid comes to $7,194 per person while Passport spends about $4,558 per person.)

Jill Bell – We were in the Top 25 plans six years in a row.

IL – We’re talking out of dozens of plans, right?

JB – Yes, it’s a national ranking, and we were on the U.S. News and World Report’s list of America’s best health plans.

IL – So it wasn’t a systemic issue. When Crit Luallen looked at this thing, what did she see?

MC – She was really focused on (University Health Care) and what was going on at this entity.

(Editor’s note: UHC at that time was a 4-person shell company that “ran” Passport, with Philadelphia-based Amerihealth Mercy providing on contract the 250-person “Passport” personnel handling medical management, member services, claims servicing call centers, insurance administrators and other staff .)

Shannon Turner and Nici Gaines were on the UHC side, and their primary responsibility was overseeing the management contract with AmeriHealth Mercy. AmeriHealth actually employed all the employees (at Passport’s headquarters) in Louisville as well as 50 or 60 people at their Philly office. This entity had its own budget, set of books, objectives and governance. The actual operations were being done here. So if you looked at those audit findings, probably the most controversial things were their travel. That got a lot of publicity. The truth is, that was sensational, but in the grand scheme of things, that was probably the least important of the issues identified. The two most controversial issues were, (former Passport executive vice president ) Shannon Turner not only was an employee of University Health Care. but had a consulting contract with AmeriHealth Mercy, and at least the appearance of a conflict of interest. The other was … the return of the original capital to the partners, and grants for indigent care, the subject for the Attorney General’s settlement.

But most of (the investigation) focused on how the plan was governed. We got the board engaged … and since this happened, I almost think they were embarrassed by it. I haven’t had to arm twist anybody to support anything we’ve done. They’ve voted to restructure themselves and six have agreed to step off the board in favor of people from the community and partnership council.

IL – All these sensational things never really had an impact on ….

MC – On the beneficiaries and the staff? They really didn’t. You never heard anyone claim members weren’t getting served. That the quality of care was any different than it had been before (the irregularities outlined in the audit.) Claims were processed in a timely manner. Even the governor has said publicly no one ever called into question the fundamental operations of the plan.

IL – Which is why you’re still here?

MC – In part. When you look at this and when you look at everything that needed to change, that’s what they could see looking at the organization from Frankfort; from the outside looking in. What we’ve done is far more substantial. What we’ve done is taken University Health Care, which was basically a shell corporation, and we’ve stood it up as a real business. All these people who use to worked for AmeriHealth Mercy as of July 1 work for Passport.

JB – We basically created a new company here.

IL – Why is that a good thing?

MC – The reason it’s a good thing is because in any organization, you have to have a clear alignment between governance, which sets the strategy and policy direction for the organization, the management leadership of the organization and the staff. We’ve aligned all that in one organization as opposed to having these subcontractors and all these competing interests. It just gives you a singular purpose and mission, and it’s easier to get people to rally around that. That’s the most significant thing we’ve accomplished.

JB – In six months.

IL – Was there a sense of urgency?

MC – In some respects, the crisis presented the opportunity. I told (the board), “We’re going to have to move fast and non-profits are set up to move fast.” And they agreed. That wouldn’t have been possible without the crisis.

IL – So, this is a story where oversight works, right?

MC – Well, you can say when the issues were identified, they have been corrected. Really, the opportunity missed here is, this model could have been replicated across the Commonwealth. It would have been far superior to the fee-for-service approach and I think it would have been superior to what they chose to do in other Medicaid regions.

(Last month, state officials awarded billions in Medicaid managed-care contracts to three for-profit companies. State legislators proposed expanding Passport to other parts of the state during the legislative session last March, but the Beshear nixed the proposal.)

If you look across the country, and Commonwealth Fund just did a study of this, these provider-sponsored, non-profit, community-affiliated health plans in the Medicaid space have lower administrative costs than for-profits and they have better outcomes in terms of quality and satisfaction. That’s not just us making it up. You can go on the Commonwealth Fund site.

IL –I don’t want to trivialize it, but what you’re talking about is rebuilding your brand. Passport gets tarred with this reputation of management living fast and loose at the taxpayer’s expense. You’re saying the approach is sound. Was always sound.

MC – With taxpayers, unfortunately, (the Passport brand) been damaged. But that can be restored. We think we’ll have a three-year run to prove, or reprove if there’s such word, the efficacy of the plan and rebuild the brand. The state will certainly have a lot of data to make their policy decision.

I believe this is the right model, especially for a state like Kentucky.

About Passport Health Plan. Passport is a non-profit Medicaid managed care insurance plan created in 1996, funded by five sponsors. Those sponsors are the Louisville hospital systems including Jewish Hospital & St. Mary’s Healthcare, University of Louisville Hospital, and Norton as well as University Physicians Associates, and Louisville Primary Care Association. Passport has a contract with Kentucky to provide Medicaid services to about 175,000 people in the 15-county region around Louisville including Jefferson County.